Aimless trading may be fun but is closer to gambling than to some mindful financial activity. Although investment industry is more accustomed to measuring and targeting returns over quite long periods of time, retail foreign exchange traders often prefer promises of quick returns. There are three main methods to set your goals in currency trading (or any other type of investment):
Currency units (e.g. $100 per day) — the most simple method of all as the profit and loss is always reported in your account currency. Also, if a trader knows his profit in currency units, it is easier for him to estimate his own success as all the real world expenditures are usually accounted in currency units too. Unfortunately, it is a poor measure to compare your own profit from different trading approaches or to any other benchmark. For this reason, it is probably a bad idea to set your earning target strictly in dollars, euros or any other currency.
Pips (e.g. 500 pips per week) — another simple measure of trading success, which is easily available via trading platform’s account statements. It lacks the real world connection intrinsic to the currency units, but it offers nice comparison opportunities. Unfortunately, it has its disadvantages too. Pips are quite different across currency pairs, and pips profit comparison does not take into account your money management or position sizing abilities.
ROI (e.g. 10% per month) — return on investment expressed in percentage points is an excellent way to set your short- or long-term goals, especially if you need a comparison with some benchmark ROI (e.g. bank deposit interest rate). ROI depends greatly on the money management techniques employed in your trading and tells nothing about your actual earnings unless you supply your account balance size values along with the percentage return values.
It is important to note that setting short-term goals, while can be useful in relations to strategy effectiveness assessment and personal motivation, can be harmful by worsening the emotional impact and inducing overtrading (or sometimes undertrading). Personally, I prefer to set rather weak yearly goals instead of applying psychological pressure to myself. And how about you?
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